Most Hong Kong retailers spent the last year struggling with falling sales, narrowing margins and plunging profits.
But not 759 Store parent CEC International. In its half year report just released, the Hong Kong listed company says it recorded total revenue of HK$1,258 million in the six months to October 31 – 10.6 per cent growth year-on-year. Better still, consolidated gross profit was
$425.8 million, up 17.6 per cent. Gross margin rose from 31.8 per cent to 33.8 per cent.
CEC’s 759 Store network comprised 92 per cent of the company’s business and that’s where the improved performance came from, returning a 19 per cent increase in revenue, compensating for falling sales in the company’s unrelated steel coil business. Retail gross profit rose 22.3 per cent, despite shop rental costs rising 28.9 per cent due to new store openings and salaries and retail operating costs rising by a similar figure.
The stunning performance – given the current retail landscape – was achieved through reconfiguring its retail offer to meet the market, changing its logistics and backend practices and sticking to a “low margin, high turnover” policy.
CEC finished the six months with 281 stores having opened 72 and closed 17. Ten of the new stores were 759 Bakery stores, which it terms restaurants.
Having analysed customer spending patterns over recent years, CEC realised shoppers felt more comfortable in larger stores with broader product ranges. So they have actively sought new sites with larger space, or worked with landlords to find ways of expanding existing outlets.
The group also focused on expanding its range, with a particular focus on Japanese snacks which are enjoying an increasing following in the territory.
The company has decreased the weighting of its snack category and expects that to continue as it imports more food groceries and frozen foods from Europe and America greatly.
Year-on-year CEC has increased the types of product it sells from 15,000 to about 22,000; about 31 per cent of products are snacks, groceries including rice, oil, noodles, seasonings and canned foods increased from 13 per cent to 25 per cent. Products are sourced from 61 countries, with about 39 per cent coming from Japan.
Outlook
CEC International expects structural adjustments would continue to emerge in retail market, saying it is hard to predict when the continual declining retail sales figures will change.
“Apart from the demand for supermarket category products that would remain relatively stable, the demand for most of local retail item category products [will] continue to decrease.” the company said in its results presentation.
“The group fully understood that, under this unfavorable market condition, all retailers would be much keener to fight for every inch of land in the market so that market competition in future would be much intense. The group would absolutely not “stay still to await doom”.”
In the year ahead the company plans to actively develop its importing and retailing business
for categories other than snacks, believing “food of leisure” sales will decline it economic conditions worsen.
“In this connection, the group had put more effort to introduce much more people’s necessities such as food groceries, chilled and frozen foods, housewares and personal care products, among which the weighting of food groceries had reached 25 per cent in the whole business. In
the first half of the year, the amount of “rice” sold in 759 Store had reached 6000 tones. In this moment, the founder was actively doing his best to seek for the shop sites that were allowed to sell rice and food groceries, from 759 Store’s biggest landlord, Link, so as to provide much more room for the business to develop. The group would further develop much more sources to obtain “rice”, “cooking oil”, “noodle”, so as to introduce much more choices of people’s necessities for local Hong Kong residents.
“In addition to that, for chilled and frozen foods, 759 Store was mainly selling seafood, lamb, beef and poultry products from worldwide. The group [will] try to introduce frozen pork products from Europe, so as to provide much more supply for food ingredients of high quality and reasonable price.”
In its shops, CEC says it will adopt an idea of “competing keenly, taking what others do not want”; searching in districts for shop sites suitable to carry business.
“Setting residential area as target, the group tried its best to seek for the operating scopes of higher flexibility, from Link and the Housing Authority that manage the biggest residential shopping malls, so as to open relatively bigger 759 Store shops, which not only could display much more categories of products the group imported by itself, but also keep strengthening the
existing sales network in residential district, consolidating the business scale in future.”
CEC International says that in order to gain continuous support from customers, 759 Store has to price its products fairly, actively search for much more shopping choices for customers and seriously do its best to improve the quality of shopping experience it provided.